NEW DELHI: Moody's Investor's Service has lauded the fiscal consolidation plan outlined in the Union Budget, terming it as "realistic" and "credit positive". The budget for 2013-14, unveiled by P Chidambaram on Thursday, targets a fiscal deficit of 4.8% of gross domestic product in the next fiscal through higher revenues. The fiscal deficit for 2012-13 is projected at 5.2% of GDP, less than the earlier estimate of 5.3%.

"This plan of modest fiscal consolidation is credit positive for the sovereign because against a backdrop of subdued GDP growth and upcoming elections, it is a realistic effort to correct India's macroeconomic imbalances," the credit ratings agency said in its assessment of the Budget on Monday. Moody's, however, said the growth assumptions may be "optimistic" and "achieving such targets will be challenging".

"In particular, India's divestment revenues have generally been lower than what the government has budgeted," the agency said in its report. The budget proposals have drawn praises from other ratings agencies as well. Standard and Poor's found it "prudent". Moody's is the only one of three global rating agencies that has maintained a "stable" outlook on India's ratings.

Last year, Standard & Poor's and Fitch Ratings had cut the outlook to negative and warned that there was a good chance of it being downgraded to "junk". The budget assumes nominal GDP growth of 13.4% and total revenue growth of 23.4%, including a doubling of revenue from divestments. It also anticipates total expenditure growth of 16.4%, with 29% growth in planned spending and a 10% reduction in subsidy spending.

The government wants to restrict its subsidy bill to 2% of GDP in 2013-14, compared with 2.6% in the current year. The government, which has so far this year sold Rs 21,504.32 crore of state shares, is targeting .`55,814 crore through disinvestments in 2013-14.

Moody's said there are still no indications that GDP growth (and hence tax revenues) will accelerate to the extent the government expects. It also warned that the subsidy bill could overshoot budget estimates, as it has in the last seven years.

The report noted that a lower deficit target for fiscal 2014 would have suggested a more aggressive fiscal consolidation effort, but would have been less realistic. Moody's said the proposed tax changes, including investment incentives, and proposals affecting downstream oil marketing companies, steel companies, and upstream oil and gas companies is a credit positive for the corporate sector.